AI is storming through markets, construction and corporate planning. But its imprint on the inflation and jobs data the Federal Reserve watches most closely remains too small and contradictory to move the policy dial — at least for now.
For most financial markets, it’s hard to ignore the AI boom. Chip stocks around the world have surged and swung wildly this year. Tech earnings growth has exploded, while so-called AI hyperscalers have embarked on a corporate borrowing spree and marshaled hundreds of billions of dollars in financing for the buildout.
And there’s little doubt that policymakers are watching closely for the long-term transformative effects of AI adoption on demand for workers, productivity and ultimately the economy’s speed limits. Indeed, one of Fed Chair Kevin Warsh’s task forces on reforming Fed thinking long term focuses on productivity and jobs and will put the AI revolution under the policy microscope.
But more than halfway through 2026, inflation and labor market data show only glancing blows — and measurement issues are a headache.
July’s consumer price inflation report this week revealed some pressure in computer and equipment prices, and there has been a debate inside the Fed for months about how “software and accessories” components have spurred core goods inflation in the Fed’s favored personal consumption expenditures (PCE) basket.
Although the methodology is challenged, the PCE index weighting for software and accessories is 30 times that of the consumer price index (CPI). Earlier this year, the category accounted for more than half of the annualized inflation of core goods, which was running above 5 per cent.
And yet, that software and accessories weighting in the PCE basket is just 1.2 per cent.
But so-called “chipflation” from a shortage of memory chips in the AI data-center scramble could spread to other goods containing chips, as Apple’s product price hikes last month highlighted. Then there are bottlenecks in demand for physical computers and related equipment too.
Economists at Morgan Stanley point out that the July CPI report indicated that tariff-related goods price rises are topping out, but this was offset as AI-affected prices began to push goods categories back up. The AI price push seems to be broadening to categories other than software and accessories, they added, with July’s CPI showing a pickup in electronics prices and personal computers and peripherals climbing 3.5 per cent on the month, likely due to Apple’s hikes.
Still, the weighting of the “information technology, hardware and services” segment of the CPI basket is just under 2 per cent — dwarfed by the mega weightings of housing, shelter and transportation, and even lower than the apparel segment.
Of course, the wider influence of chip and information-technology inflation beyond these categories bears watching. These input costs for businesses, and affected sections of the producer price index — such as airfares — feed directly into the PCE calculation.
And yet, it will be a battle for the Fed to disentangle the data and isolate AI as a single factor.
The bigger monetary policy impact over the horizon lies in the other part of the Fed’s dual mandate — maximum employment.
If, as many fear, AI displaces workers rather than just helping them, there could be weaker wage growth and household demand, alongside a productivity lift for businesses down the line. That would bias Fed policy in the opposite direction if it materializes.
As with inflation, the effect is noticeable in some hiring and jobs surveys and data cuts, although clear evidence of its effect on broader measures of job creation and unemployment is more difficult to nail down.
Global outplacement firm Challenger, Gray and Christmas said last Thursday that planned job cuts by U.S.-based employers dropped 27 per cent to 33,429 in July, the lowest level in two years.
However, it also said layoff plans continue to be announced primarily in tech. “Artificial intelligence is still the story, as investments in the technology reshape organizations,” said Andy Challenger in the report.
Of course, AI adoption may be affecting more than the tech sector itself — insurance and other financial services are showing falling payrolls, with insurance jobs down more than 80,000 over the past year, according to the latest payrolls data.
Indeed, Deutsche Bank strategists point out that the Challenger survey now cites AI as responsible for 30 per cent to 40 per cent of all job cuts over the last three months when reasons were given.
The Challenger report itself said AI led as the reason for job cuts — cited in a third of all layoffs announced — and it was the fifth consecutive month that the technology had been the leading reason.
Accurate measurement is likely to be a factor here too when it comes to the hard numbers, but for the Fed this cuts several ways. AI may be exerting pressure on jobs within an otherwise more stable picture — certainly judged by a falling unemployment rate, low jobless claims and brisk hiring in other sectors.
AI will almost certainly have big economic impacts down the road, but the Warsh task force will likely have to stare into a crystal ball for clarity rather than rely on existing data.
As for the September policy meeting, the data remains too unclear to swing the discussion either way.